2022 (8) TMI 350 - AT - Income Tax

Addition u/s 68 - Unexplained loan receipts - as per AO there has been rerouting of the money through various layers like the deposits in the name of persons of no means and the same had been deposited in the banks and after depositing in the bank, the amount had been transferred to a closely held company, from which the assessee had received Rs.1.00 crores - HELD THAT - As unsecured loan received by the assessee from Karnimata Commerce Pvt. Ltd. is also part of unaccounted money available with the group which was laundered and re-introduced in the grab unsecured loan through the bank account of the creditor and the assessee having failed to establish the genuineness of the transaction and creditworthiness of the creditor. CIT(A) has rightly treated 10% of the amount credited in the books of account of the assessee as income of the assessee following the findings given by the Settlement Commission, thus, the Modus Operandi of the assessee cannot be treated differently than the Modus Operandi adopted by the members of the group. No reason to distinguish the case of assessee from the cases of other assessee s of the Group, where a considered finding of the Settlement Commission is already in place. Accordingly, we refrain ourselves from interfering with the just and proper findings recorded by the CIT(A) in this regard. Thus, we uphold the same and dismiss ground No.1 of the assessee. Disallowance of interest on unsecured loan - As on perusal of the findings given by the Settlement Commission in this regard, we found that the assessee could not prove the creditworthiness of the lender company in view of the enquiry report submitted by the Pr.CIT, Central Circle. Since, the findings of Settlement Commission are applied in the case of assessee and a relief of 90% has already been given to the assessee on her unexplained income U/s 68 of the Act, no expense with respect to the said income can be further allowed. Thus, we are of the considered opinion that the interest paid with reference to the impugned unsecured loan cannot be allowed to the assessee and, therefore, we uphold the order of the CIT(A) on this ground. Accordingly, the ground No.2 of the assessee is also dismissed. Consequently, the appeal of the assessee is dismissed.

Summary

Issues Involved:
1. Confirmation of addition of Rs.10,07,534/- out of Rs.1,00,75,342/- made by the AO under Section 68 on account of loan received from Karnimata Commerce Pvt. Ltd.
2. Confirmation of disallowance of Rs.75,342/- made by AO on account of interest on unsecured loan.

Issue-wise Detailed Analysis:

1. Confirmation of addition of Rs.10,07,534/- under Section 68:

The case pertains to an appeal filed by the assessee against the order passed by the CIT(A), Bilaspur, for the assessment year 2011-2012. The primary issue is the confirmation of addition of Rs.10,07,534/- out of Rs.1,00,75,342/- made by the AO under Section 68 of the Income Tax Act, 1961, on account of a loan received from Karnimata Commerce Pvt. Ltd. The AO noted that the assessee failed to discharge the burden of proving the creditworthiness and genuineness of the transaction. The AO treated the unsecured loan as not genuine and made an addition of Rs.1,00,00,000/- under Section 68.

The CIT(A) partly allowed the appeal, treating 10% of the amount credited in the books of the assessee as income, based on the findings of the Settlement Commission in the case of Radheshyam Agarwal and group. The assessee argued that the addition was based on a letter dated 21.12.2011, which was obtained under pressure. The letter was later stated to be not binding before the Settlement Commission. The assessee also provided legal and cogent evidence to support the loan, which remained uncontroverted.

However, the Tribunal found that the assessee, along with other members of the Radheshyam Agarwal Group, received amounts from Karnimata Commerce Pvt. Ltd., which were rerouted through various layers and treated as unaccounted income. The Tribunal upheld the CIT(A)'s decision to treat 10% of the amount as income, following the findings of the Settlement Commission, and dismissed the assessee's ground.

2. Confirmation of disallowance of Rs.75,342/- on account of interest on unsecured loan:

The second issue is the confirmation of disallowance of Rs.75,342/- made by the AO on account of interest on the unsecured loan. The AO disallowed the interest on the grounds that the assessee could not prove the creditworthiness of the lender company. The CIT(A) upheld this disallowance, and the Tribunal also agreed with the CIT(A)'s findings.

The Tribunal noted that the assessee failed to establish the genuineness of the transaction and the creditworthiness of the creditor. Since the Settlement Commission had already provided a relief of 90% on the unexplained income under Section 68, no further expense related to the said income could be allowed. Thus, the interest paid on the unsecured loan could not be allowed, and the Tribunal upheld the CIT(A)'s order, dismissing the assessee's ground.

Conclusion:

The Tribunal dismissed the appeal of the assessee, upholding the CIT(A)'s decision to sustain the addition of Rs.10,07,534/- under Section 68 and the disallowance of Rs.75,342/- on account of interest on the unsecured loan. The Tribunal found that the assessee failed to prove the genuineness and creditworthiness of the transactions and followed the findings of the Settlement Commission in the related group cases.